Aug. 10 (Bloomberg) -- Tata Power Co., the developer of
India’s first 4,000-megawatt plant, has asked the government to
help recover potential project losses caused by the rising price
of Indonesian coal, two people familiar with the matter said.

Tata Power, which has coal assets in Indonesia, has told
the government that the Southeast Asian nation’s plan to
regulate exports of the fuel could double the cost of generating
power at its 170 billion rupee ($3.8 billion) plant at Mundra in
the western state of Gujarat, the people said, asking not to be
identified because the matter isn’t public.

India has awarded contracts to build four of 16 planned
coal-fired plants, each with a capacity of 4,000 megawatts, to
help reduce blackouts in the second-fastest major growing
economy. The South Asian nation faces a peak power deficit of 13
percent in the current financial year.

“Recently, Indonesia like other coal-exporting countries
made amendments in conditions related to exports of coal from
their shores,” Tata Power said yesterday in an e-mailed
statement. “We look forward to a discussion on how the issue of
change in law in Indonesia regarding imported coal could be
dealt with.”

Tata Power rose 1.1 percent to 1,190 rupees at 9:39 a.m. in
Mumbai trading. The stock has declined 13 percent this year
compared with a 17 percent drop in the benchmark Sensitive
Index.

The utility won the Mundra project in December 2006 with a
bid of 2.26 rupees a unit. Increases in the tariff are linked to
the power regulator’s index.

Tariff Option

Even with tariff revisions, the price could make the Mundra
project financially inviable during its first five years of
generation, one of the people said.

“The power ministry has been consulted and they will
probably have to increase the tariff,” said Rohit Singh, an
analyst at IDBI Capital Market Services Ltd. in Mumbai. “Other
developers who bid will certainly be disappointed, but there’s
really no other viable option.”

Coal prices have surged on rising demand to feed power
stations and steel mills in China, the world’s largest user of
coal, and amid global production disruptions, including record
flooding in Queensland.

The average price of power-station coal at Australia’s
Newcastle port, a benchmark for Asia, rose to $124 a ton in the
first half of 2011 from $97 a year earlier, according to
McCloskey Group.

The first unit of the Mundra plant is scheduled to start in
September, Tata Power said during an earnings conference call on
May 19.

Reliance Power Ltd., which won contracts to build the other
three 4,000-megawatt projects, is also seeking to resolve the
problem caused by Indonesia’s fuel tariff, Power Secretary P.
Uma Shankar said by telephone yesterday. The utility reached out
to the ministry in July after halting work on its project at
Krishnapatnam in the southern state of Andhra Pradesh, one of
the people said.